COVID-19 has proven to be a tragedy for our country and the world. In addition to the heartbreaking loss of life, it has touched all sectors of workers and employers. Nationwide, small- and medium-sized businesses (SMBs), have taken a massive blow, with limited resources for survival.
First, individually owned and operated stores and restaurants had to close indefinitely with only a day or two of notice. Second, the Federal Paycheck Protection Program (PPP) – which was designed to provide bridge loans for payroll, rent, mortgage interest, or utilities – was drained of funds almost immediately. And third, the insurance industry is denying business-interruption insurance claims nationwide, based on vague wording of policies.
The industry is claiming that if the interruption isn’t the result of physical damage to the businesses, policyholders are not eligible to receive insurance money. Of course, to most laypeople, this sounds ridiculous because there are any one of a number of reasons a business could be interrupted without sustaining physical damage. A chemical leak, for instance, and certainly a global pandemic.
This decision is causing devastating results to SMBs, particularly in light of the much-publicized abuses to the PPP that resulted in the initiative to shut down temporarily. The PPP is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. Slated for “companies with 500 employees or less,” it is a loan-forgiveness program administrated by the Small Business Administration (SBA), conducted via SBA-approved lenders.
Questionable decisions were reported almost immediately, when it became known that large, cash-liquid, publicly traded companies were receiving hundreds of millions of dollars. The PPP was drained within weeks, leaving tens of thousands of truly “small” businesses empty handed. After much publicity and public outrage, companies such as Ruth’s Chris Steak House, Shake Shack, and the Los Angeles Lakers, returned the money they received so those funds could be redistributed.
Companies such as small-business owner Larry Brehm’s Play It Again Sports – a sporting-goods consignment store in Torrance, California – have been shut down completely. The city governments make decisions regarding what businesses are “essential” and if allowances for curbside or delivery sales are permitted to supplement the loss of business. Torrance has not allowed this in Brehm’s case so he cannot sell at all.
“I’ve been proactive about showing how I can set up protocols to safely do curbside sales – I could drop off at the back door and maintain a safe distance – but they’ve refused,” he says. “Even if I was allowed to sell curbside, it would still be maybe 10 percent of my usual sales, but it would be something.”
Brehm has owned his store for 15 years, maintaining a business-interruption insurance policy the entire time. He also applied for PPP immediately after the program was announced, and as of this writing, his approval is still pending with Wells Fargo. He is told every day he hasn’t been denied but he hasn’t been approved either.
“I saw the writing on the wall and was probably among the first wave of people to file my business interruption claim,” he says. “At the time, my agent encouraged me but once I did, I was told that no claims were being paid.”
This has been corroborated by Daniel Schlessinger, a partner at Jaszczuk P.C., a Chicago-based law firm specializing in insurance claims, particularly COVID-19 at the moment. Schlessinger, an attorney who has been litigating business insurance on the insurer side for 39 years, now represents policyholders. He has established a national helpline for business owners who have questions about their policy or need to speak to a lawyer about their claim being denied. (Call 520-INS-HELP or email email@example.com for more information.)
“The insurance industry as a whole got out in front of this issue and before anyone even had a chance to make a claim, they did a massive campaign with the brokers and agents to convince them that there was no coverage and to tell their policyholder clients not to even bother filing,” he says. “Our first job representing policyholders is to convince them they should still file, even though they are being told there is no coverage.”
Schlessinger contends that his clients bought business interruption insurance to provide coverage for their lost income if they were prevented from doing business. They paid their premiums faithfully and now they’re being denied the one time they’ve needed it.
“My advice to clients – and really anyone I talk to – is to go ahead and file your claim,” he says. “Get it on record and get in the queue because No. 1, there is a possibility insurance companies will realize their responsibility and live up to their obligations under their policies. No. 2, there is a chance government legislation will be enacted – several states have passed laws requiring the insurance companies to pay these claims. No. 3, you can get relief via the court system. Sadly, that may take months or even years, and many will not survive, but my business is getting these claims into the legal system so something might be done.”
Concerned citizens and businessowners can also lobby to get the word out about this issue. Every state has an insurance commissioner who oversees this type of problem.
When asked if he thinks the industry will claim it will run out of money if they paid every claim, Schlessinger says they should cross that bridge when they come to it.
“I say start paying the claims,” he says. “It’s your obligation to pay and if the money runs out, deal with it when it happens. The insurance industry has existed for centuries and has never collapsed under any major calamity. It’s always managed to survive, and I have no doubt it will survive this too.”
Citing the example of how AIG was bailed out during the 2008 financial crisis, where it received billions of dollars to keep the business afloat, Schlessinger estimates the industry has probably close to $800 billion in surplus.
For someone like Brehm, it’s a matter of surviving a couple more weeks of lockdown or not.
“Bottom line, if I don’t get help, I won’t have a business anymore;” he says. “And I’m not just thinking of myself, I’m only seeking what should be offered to everyone. I’ve paid these premiums for 15 years and to be denied what can save my livelihood and that of my employees on a technicality? It’s just wrong.”
Brehm said he hopes businesses of all sizes stand up and start making noise to get the attention of the state insurance commissioners, legislators and media. Public outcry got the large, richer companies to give back PPP money and hopefully it can get insurance companies to honor their clients’ policies.
“I’m not going to just take this and say, ‘Oh well,’” Brehm says. “I’m shocked and upset by what happened but I can speak out. I’m a tiny store in Torrance but I’m one business owner out of hundreds of thousands. If we all speak together, maybe we can be heard.”
Currently, the California Department of Insurance has FAQs on its site regarding businesses and COVID-19. While it addresses that a mandated government shutdown may not be covered in many policies, the commissioner is working hard to rectify to get businesses relief.
“The coronavirus crisis is affecting millions of business owners and workers, and Insurance Commissioner Ricardo Lara and the Department have been working with federal authorities and state and local leaders to help businesses who are losing income due to government actions and business closures as a result of the COVID-19 pandemic.
Commissioner Lara sent a letter to Speaker Nancy Pelosi and California’s Congressional delegation alerting them to the scale of the business interruption crisis and calling on them to take immediate action now to protect these businesses and their workers.
In order to inform state policymakers working to protect small businesses, the Department of Insurance is conducting a mandatory request to insurance companies for data about the number and type of small businesses with business interruption coverage and the scale of both covered and uninsured business losses.”
If you are a consumer or business owner in California and believe you’ve been wrongfully denied coverage, you can file a complaint here.
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